1.

Compute the profitability ratios, including the a and b components (DuPont Methods) of ratios 2 and 3 as shown in the textb
profitability ratios should be shown for all three years.

Harrod's Sporting Goods

Profit Ratios 2013 2014
1. Profit margin (net income/sales) 4.52% 5.42%
2 a. Return on assets (net income/total assets) 6.09% 7.23%
2 b. Return on assets (net income/sales x sales/total assets) 6.09% 7.23%
3 a. Return on equity (net income/stockholder’s equity) 16.04% 18.55%
3 b. Return on equity (return on investiment/(1-debt/assets)) 16.04% 18.55%
ratios 2 and 3 as shown in the textbook. The

d's Sporting Goods

2015 Industry
3.99% 4.51%
5.71% 5.10%
5.71% 6.00%
15.02% 9.80%
15.02%
2. Write a brief one-paragraph description of any trends that appear to have taken place over the three-year time period.

From 2013 to 2014 we can identify that the profit ratios rose in a significant way. Even more than the profit ratios presented b
the industry. But in the year 2015, there is a decline in the ratios, surprisingly lower than the year 2013. However, even with a
decline in 2015, the return on equity is still above average in comparison to the industry. The owners of Harrod's Sporting Goo
are more rewarded than other shareholders in the industry.
 e three-year time period.

n the profit ratios presented by

r 2013. However, even with a
wners of Harrod's Sporting Goods
3. Based on the adjusted net income figure of $310,818, recompute the profitability ratios for 2015 (include parts a and b for
ratios 2 and 3).

Harrod's Sporting Goods

Profit Ratios 2013 2014
1. Profit margin (net income/sales) 4.52% 5.42%
2 a. Return on assets (net income/total assets) 6.09% 7.23%
2 b. Return on assets (net income/sales x sales/total assets) 6.09% 7.23%
3 a. Return on equity (net income/stockholder’s equity) 16.04% 18.55%
3 b. Return on equity (return on investiment/(1-debt/assets)) 16.04% 18.55%
or 2015 (include parts a and b for

d's Sporting Goods

2015 Industry
6.19% 4.51%
8.85% 5.10%
8.85% 6.00%
23.30% 9.80%
23.30%
4. Now with the adjusted net income numbers as part of the ratios for 2015, write a brief one-paragraph description of trends
that appear to have taken place over the three-year time period (refer back to the data in Question 1 for 2013 and 2014).

The extraordinary loss could be responsible for the profit ratios decline in 2015. After the adjusted net income, we can see a
trend of a rise in the profit ratio each year. After the adjustment, the profit ratios for Harrod's Sporting Goods are always highe
than the industry between 2013 and 2015.
aragraph description of trends
tion 1 for 2013 and 2014).

ed net income, we can see a

porting Goods are always higher
5. Once again, using the revised profitability ratios for 2015 that you developed in Question 3, write a complete one paragraph
analysis of the company’s profitability ratios compared to the industry ratios (figure 3). Make sure to include asset turnover an
debt to total assets as supplemental material in your analysis.

Harrod's Sporting Goods profit margin is 6.19% while the industry profit margin is 4.51%. This shows that the company has a
higher return on the sales dollar than the industry.
Also, the company's return on assets is higher than the industry. The company turns over its assets more rapidly than the
industry. Sales to total assets are 1.43 for Harrod's Sporting Goods and only 1.33 for the industry.
Harrod's Sport Goods' return on equity is 23.3%, while the industry is only 9.8%. Those represent that the owners of the
company are higher rewarded than other shareholders from the industry.
When analyzing the return on equity, the ratio of debt to assets for the company is 0.62 and for the industry 0.48. Both return
on assets and the debt to assets ratio contribute to a higher return on equity.
rite a complete one paragraph
re to include asset turnover and

ows that the company has a

ets more rapidly than the

y.
t that the owners of the

the industry 0.48. Both returns

6. Harrod’s has a superior sales to total assets ratio compared to the industry. For 2015, compute ratios 4, 6 and 7 as described
the text and compare them to industry data to see why this is so. Write a brief one-paragraph description of the results. Note:
ratio 4, only half the sales are on credit terms.

Harrod's Sporting Goods

Profit Ratios 2013 2014
1. Profit margin (net income/sales) 4.52% 5.42%
2 a. Return on assets (net income/total assets) 6.09% 7.23%
2 b. Return on assets (net income/sales x sales/total assets) 6.09% 7.23%
3 a. Return on equity (net income/stockholder’s equity) 16.04% 18.55%
3 b. Return on equity (return on investiment/(1-debt/assets)) 16.04% 18.55%
4. Receivable turnover (sales (credit)/receivables) 6.25 10.37
6. Inventory turnover (sales/inventory) 4.39 3.59
7. Fixed assets turnover (sales/fixed assets) 2.86 2.70

The company's rapid turnover can be explained, first, with ratios 4 and 6. The Receivable turnover shows that Harrod's Sportin
Goods collects its receivables faster than the industry, 6.31 times versus 5.75 times. The inventory turnover explains that the
company turns over its inventory 4.75 times per year and the industry 3.01 times. With that, we can assume that Harrod's
Sporting Goods has more sales per dollar of inventory than other companies in the industry. The ratio of sales to fixed assets i
lower than the industry. But that is a minor detail consideration a faster movement of inventory and accounts receivable.
mpute ratios 4, 6 and 7 as described in
ph description of the results. Note: for

d's Sporting Goods

2015 Industry
6.19% 4.51%
8.85% 5.10%
8.85% 6.00%
23.30% 9.80%
23.30%
6.31 5.75
4.75 3.01
2.96 3.20

rnover shows that Harrod's Sporting

entory turnover explains that the
t, we can assume that Harrod's
. The ratio of sales to fixed assets is
ntory and accounts receivable.
7. Conclusion: Based on your analysis in answering Questions 4 and 5, do you think that Becky Harrod has a legitimate compla
about being charged 2½ percent over prime instead of one percent over prime? There is no absolute right answer to this
question, but use your best judgment.

Becky Harrold has a legitimate complain. The analyzes showed that Harrod's Sporting Goods is stronger than the avarage
companies in the indutry. Yes, she should be required to pay only one percent over prime.
arrod has a legitimate complaint
olute right answer to this

tronger than the avarage